How boards should approach diversity, equity and inclusion in the workplace

THE focus on environmental, social and governance (ESG) issues has mainly centred on areas such as science-based environmental concerns — which directly impact a company’s bottom line.

What is less clear is the material and direct impact of social areas, such as human capital management and the workforce diversity, equity and inclusion (DEI) considerations that underpin the social values of an organisation.

However, it is increasingly recognised that resilient organisations need to harness diverse perspectives to innovate and enhance their brands and market positioning. To that end, regulators and investors are calling for greater disclosure of DEI practices.

While DEI disclosure is nascent in Singapore, the US Securities and Exchange Commission in 2020 required companies to disclose enhanced human capital management details. An Aon review of US companies’ practices in DEI and human capital management disclosures the following year found that 53 per cent of companies mentioned the importance of DEI — of which 80 per cent highlighted specific DEI initiatives in place. These included unconscious bias training, diverse candidate recruitment and employee resource groups.

More than half of the companies disclosed the gender breakdown of their workforce. And 41 per cent overlaid these quantitative diversity metrics with job types, career levels and other categories, demonstrating mature oversight of diversity in the workforce.

One of the most contentious DEI issues is how to make salary equity transparent. While the principle of equal pay for work of equal value is irrefutable, a pay gap in gender, for instance, maybe due to systemic and interrelated barriers in education choices, career opportunities, family circumstances, organisation sponsorship, and so on.

Data analytics can help an organisation better understand its workforce. A dashboard that enables a firm to cross-analyse gender, age, expertise and geographical location with business function and organisation level, at the point of hiring and at subsequent points of mobility throughout the organisation, can reveal insights into performance, pay, promotion, attrition, or participation in talent programmes.

Equipped with such details, an organisation can identify opportunities for improvement, set short-term and long-term goals, and monitor progress. It is often insightful to benchmark such key metrics against peers (where data is available) to help understand if there are areas where the company needs to pay extra attention.

For a DEI effort to be effective, it must be aligned and integrated across the organisation and be part of the broader human capital strategy. For example, the human resource function can build a recruitment, training and development programme at the mid-entry to junior levels. And over a longer term, develop and progress employees up the ladder, if the goal is to achieve a diversity ratio at the senior level.

A successful DEI strategy starts with inclusive leadership and commitment from the top. Human capital stands high as an asset class in modern organisations. Boards and investors are expecting more insight into how this asset class is being managed. Regulators, institutional investors and independent standard setters are setting DEI disclosure requirements as a part of the ESG drive.

With advanced workforce analytics, robust data and cloud technology, organisations are in a position to provide disciplined and rigorous quantitative analyses to aid decision-making and track progress. The quantitative analyses would then need to be supplemented with anonymous employee surveys or other feedback channels to surface any specific bottlenecks. It is only with such quantitative and qualitative assessments that popular initiatives such as unconscious bias training or mentorship can augment the DEI drive.

This approach communicates a more complete and aligned narrative to the company’s stakeholders of what and how the organisation is working towards achieving its DEI objectives.

DEI aims to create a diverse and inclusive workforce with a mix of culture, gender, age, requisite skillsets and physical abilities. At a time when growth for Singapore companies comes from other geographies, employee diversity takes on a broader meaning to include a multicultural workforce.

Directors and CEOs often talk about using foreign acquisitions to inject a diverse perspective and open up the mindset of Singapore, Inc. An acquired diversity would need to be included in the decision-making fabric. The same applies for foreign multinationals operating with a local workforce. When the talent market is in short supply, it only makes sense to tap on a wider range of talent.

Ultimately, an organisation’s board of directors should steer its DEI strategy as a part of its business strategy and ESG oversight, achieving both business and social goals. It is also up to the board to then take an enterprise-wide approach to see through the strategy from the boardroom down to the workforce. This involves identifying the metrics most critical to the business, insisting on the discipline and measurement necessary to capture those metrics, developing baseline goals, and telling a coherent and consistent story around its human capital strategy.